Will its latest round of funding help Flipkart in striking a 'right' deal for Snapdeal?

Here's how the Flipkart-Snapdeal deal may make more sense in investors consolidation than in operational synergiesRajiv Singh | ET Bureau | Updated: April 17, 2017, 08:55 IST

(Thinkstock Images)A little over a year ago, in end-March, Flipkart co-founder Sachin Bansal found an opportune moment to take a dig at etailing rival Snapdeal when Chinese ecommerce giant Alibaba announced a solo entry into the country.

"Alibaba deciding to start operations directly shows how badly their Indian investments have done so far," tweeted Bansal. Snapdeal had raised $500 million from Alibaba, Foxconn and SoftBank in August 2015.

Kunal Bahl, Snapdeal’s cofounder, was quick on the uptake. "Didn’t Morgan Stanley just flush five billion worth market cap in Flipkart down the toilet? Focus on your business, not commentary," tweeted Bahl.

Fast forward to April 2017. Bad blood on Twitter may be par for the course but in business — when yesterday’s rivals can be tomorrow’s partners — it rarely makes sense for it to flow for too long.

Particularly when funds-starved Snapdeal is scouting for a lifeline, and Flipkart perhaps open to a flanking strategy with yet another brand to take on Alibaba-backed Paytm and deep-pocketed Amazon. Bahl’s recent letter to Snapdeal employees offered not-so-subtle clues of an imminent sellout. While our investors, Bahl said in a letter early this week, are driving the discussions around the way forward, I am reaching out to let you know that the well-being of the entire team is mine and Rohit’s top and only priority (Rohit Bansal is the other cofounder of Snapdeal).

"We will do all that we can, and more, in working with our investors to ensure that there is no disruption in employment," he elaborated, adding that "there are positive professional as well as financial outcomes for the team as the way forward becomes clear."

While Flipkart did not reply to email sent by ET Magazine, Snapdeal declined to comment on 'speculations.'

Flipkart, bolstered by its latest funding of $1.4 billion from China’s internet giant Tencent, online auction site eBay — which sold its India operations to Flipkart — and Microsoft early this week, might be tempted to buy Snapdeal, reckon venture capitalists.

Striking the ‘Right’ Deal

Each of Flipkart’s new investors is already entrenched in a battle with one of Flipkart’s competitors in the global markets, contends Shubhankar Bhattacharya, Venture Partner at Kae Capital. It’s eBay versus Amazon, Tencent vs Alibaba, and Microsoft is pitted against Amazon Web Services.

Given their deep pockets and the incentives these new investors would have to take the fight to the competition, an extended runway appears the most direct way Flipkart benefits from this new set of investors, he adds.

Bhattacharya, however, reckons that Flipkart has little to gain from a Snapdeal buyout. But what about the prospects of getting SoftBank, one of the largest investors in Snapdeal with a 33% stake, on board? Would that not help in taking on Amazon and Alibaba? Bhattacharya is not convinced with the logic. While Softbank is clearly one of the most vaunted global investors, one must ask if three global marquee names — eBay, Microsoft and Tencent — don’t already serve that role at Flipkart.

There also appears too little room for Flipkart to exploit synergies with Snapdeal, as there is already a significant overlap in the customer and seller base of the two companies. Moreover, when it comes to customer acquisition, Flipkart’s real rival continues to be Amazon, and a potential Snapdeal acquisition is unlikely to ease the burden. And if the Flipkart-Snapdeal deal is being driven by investors, that may be of little help operationally.

“I am not sure if a strategy so heavily dependent on alignment of investor interests is the right battle to choose,” says Bhattacharya.

However, there are takers for a Flipkart-Snapdeal deal. “A Snapdeal acquisition helps consolidate the ecommerce market and get SoftBank as an investor,” says Rutvik Doshi, director at the India arm of Inventus Capital Partners.

Flipkart also instantaneously acquires a large long tail of merchants, which will help expand its product portfolio and reach across India, he contends. What probably will also help Flipkart in striking a ‘right’ deal would be much better bargaining power after its latest round of funding.

Since December 2010, Flipkart has made 10 acquisitions, from WeRead, a social book discovery platform, and LetsBuy, an online electronics retailer, to fashion etailer Myntra and payments startup PhonePe. Now all it’s got to do is to prove that wag on Twitter wrong. “The problem with Flipkart is they shop more than their customers do.”